India has no limits on population growth

As of 2011, India had a population of 1.24 billion, compared with 1.34 billion in China. And with China's one-child policy, India's population is set to overtake China's.

Moreover, the age distribution in both countries is very different. The dependency ratio i.e. the ratio of children and seniors to the working-age population is expected to continue to fall in India and rise in China. Of course this would only translate into more productivity if the population got education, job training, and job opportunities.

Source: A Gary Shilling's Insight

India's demographic mix will continue to be much more favorable than China's

A. Gary Shilling

India has historically had more free market orientation than China

In the years following independence, Indian politics were dominated by the Congress party which tried to emulate the Soviet Union, nationalizing many industries in the 50s and causing foreign investment to decline. But starting 1991, the country shifted towards liberalization and capitalism.

"Nevertheless, India has historically had a much more free market orientation than some other large developing countries, notably Russia and China." State controlled companies account for 14 percent of GDP in India, compared with 50 percent in China.

"India also has a number of large and sophisticated companies such as the Tata complex that can compete globally. In contrast, China is burdened with government-controlled banks and other hugely-inefficient state-owned enterprises that still produce 50% of GDP and employ a quarter of the workforce."

Source: A Gary Shilling's Insight

India's currency market is more open than China's

School students make a formation depicting the new symbol of the Indian Rupee in ChennaiAP Images

China is expected to make the yuan fully convertible by 2015, but Gary Shilling points out that it is still tightly controlled, and while it is allowed to appreciate when the market is good it s held stable when it isn't.

Despite its weakness, the Indian rupee has been "relatively free of government interventions". The recent central bank intervention has "fallen within the Reserve Bank of India's stated policy of intervening only to address severe market dislocations and foreign exchange liquidity shortages". Policymakers have also liberalized capital flows and allowed foreigners to invest in equities.

Source: A Gary Shilling's Insight

And its central bank is independent of government influence

India's central bank is relatively independent of the government while in China we recently saw governor Zhou Xiaochuan get muscled off the Communist Party's central committee. "Politicians, not central bankers, call the shots in China."

In China, "interest rates are kept artificially low (Chart 15) to provide cheap loans to inefficient state-owned enterprises that account for half of GDP and employ a quarter of the workforce. Consequently, Chinese monetary policy is run mainly by reserve requirements, a crude tool long ago shelved by the Fed and other major central banks since it amounts to credit allocation."

Source: A Gary Shilling's Insight

In India, consumer spending already accounts for 58.0 percent of GDP

Deutsche Bank

Whereas in China consumer spending accounts for just 37.7 percent of GDP

A. Gary Shilling

India's exports are less volatile because they consist largely of services, whereas China's exports are more exposed to manufactured goods which are cyclical

A. Gary Shilling

India has a high savings rate, but it hasn't slowed domestic consumption

A. Gary Shilling

China has a similar savings rate, but consumers are less willing to spend because of limited social safety nets

A. Gary Shilling

India has the English language, free press, and legal system inherited from the UK